The Pulse
“Find out what a 5% deposit really buys you. A broker reveals the truth for Australia’s median-income buyers and it’s not as easy as it sounds.”
The 5% Deposit Promise
From 1 October, Australia’s expanded 5% deposit scheme will allow many first-home buyers to enter the market with just a 5% deposit instead of the traditional 20%.
But while eligibility widens, a mortgage broker tells SBS that for many median-income Australians, the resulting borrowing power is disappointingly small. (Sourced: SBS)
In this post, we’ll explore what that means in practice, when the 5% deposit is worthwhile, and what pitfalls to watch out for.
What the Broker Revealed
The broker analyzed how much house a median income earner can afford under the 5% deposit plan. The verdict: not much. Even with the lower deposit barrier, many buyers will still struggle to qualify for a home of meaningful value.
The expanded scheme removes income caps and raises property price thresholds to allow more buyers in. Yet the broker notes that repayment capacity, interest costs, and serviceability tests still heavily constrain what homes are truly viable.
Key Constraints That Hold Buyers Back
- High mortgage repayments
Even approved loans under 95% LVR (loan-to-value ratio) may require payments that consume too much of income, leaving little margin for other costs. - Stricter lending criteria
Lenders still apply stress tests (e.g. raising rates in scenarios) that limit how much you can borrow even with a small deposit. - Fees and added costs
Loans with offset features, lender’s mortgage insurance (LMI) alternatives, or higher interest rates for riskier profiles may erode any benefit of the 5% deposit. - Low equity risk
With only 5% down, you begin with almost no buffer. If values fall or costs rise, negative equity or vulnerability to rate rises becomes more real. - Behavioural & psychological burden
Borrowers may feel trapped, anxious, or forced to accept unfavorable terms just to make the numbers work.
When the 5% Deposit Might Work — and When Not
| When It Could Help | When It’s Likely Problematic |
|---|---|
| If you have stable income, strong credit, and low existing debts | If your income is variable or you already carry debt |
| If you’re buying in a lower-cost area or suburb | If you target high-price metro markets |
| When you plan to pay down aggressively and build equity quickly | If you intend to stretch repayments to the ceiling & rely on rising property values |
Tips for Median Income Buyers
- Stress-test repayment scenarios — assume rates rise 2–3% above current levels.
- Maintain a buffer — keep emergency savings aside so you don’t bleed margin under stress.
- Choose suburbs judiciously — sometimes going a little further out yields much better value.
- Avoid other high-interest debts — reduce credit cards or car loans first.
- Monitor equity build-up — aim to pay extra when possible to reduce LVR quickly.
Additional Notes
- The 5% deposit scheme doesn’t erase all barriers — serviceability rules still dominate whether a loan is approved.
- LMI implications: some schemes may avoid LMI by government guarantee, but check details.
- Long-term viability: interest rises, economic downturns, or changes in property markets can magnify risk when your equity is minimal.
Final Thoughts
The expanded 5% deposit scheme is a bold move to improve property access. But as the broker’s insight reminds us — eligibility ≠ affordability. At median incomes, many buyers will find that the realistic options remain modest or constrained.
At MyMoneyMedic, we encourage approaching these schemes with cautious optimism. Don’t let headline policy hype conceal the fine print. Run the numbers, keep buffers, and act in ways your finances can endure — not merely what the scheme allows.
If you’d like help modeling how much you can borrow, or whether the 5% scheme makes sense for your situation, we’re here to help.